Cashbuild revenue dips as DIY trend slows

NZINGA QUNTA: Cashbuild is a retailer of building materials and associated products, selling directly to a cash-paying customer base through 318 shops. Its results are out today, August 31, 2022. CEO Werner de Jager joins me now. A very good evening to you, and thanks so much for your time on the SAfm Market Update with Moneyweb.

Revenue for the year decreased 12%. Why?

WERNER DE JAGER: Good evening, yes. Last year was a fantastic year for us. In the Covid boom that the whole industry saw our revenues grow in excess of 20% last year. So it really is an outlier that we are comparing against. We expected this, and so we are quite happy with where we are with this.

NZINGA QUNTA: Talk to me about the differences between stores that were open pre-2020 and post-2020.

WERNER DE JAGER: We don’t see a big difference in the stores, with the exception that our stores normally take about four years to get to maturity. You will find that the newest stores’ returns will be lower than the more-established stores, so that’s in general what we see happening in the business.

NZINGA QUNTA: Then talk to me about the operating expenses decreasing by 13%.

WERNER DE JAGER: We touched on it at the beginning, the higher sales. And our store staff are incentivised on sales and transactions at store level, and last year with the excellent results that we had, our profits more than doubled. There were a lot of incentives paid to all the people in the business.

So this year, with the revenues being lower there are not that many incentives around, so we’ve seen the major saving coming from the people side of the business. There are our costs as well, rentals – we saw a slight decline in the rentals. But all in all costs are very well controlled in the business.

NZINGA QUNTA: What impact did the July unrest have on your performance?

WERNER DE JAGER: From a top-line perspective we’ve seen the impact, but we were insured for our asset losses, and we were insured for business interruption as well. So when you look at the results and the operating profits of the business, the bottom line, the insurer basically put us in the same position that we would have been in. So not really an impact from that. But certainly on the top line, because we’ve had those city stores that were looted [not] trade for a good part of the year.

NZINGA QUNTA: And then trading conditions – how are they, and do you expect remaining challenges to prevail?

WERNER DE JAGER: Yes. Market conditions remain tough at the moment. In our first six weeks we were still 3% down on the prior year, and inflation is a worldwide phenomenon. In South Africa as well we’ve seen our cost inflation, our selling price inflation over 7%. So affordability is an issue for consumers. The fuel prices are high. So our market and the consumers are definitely under pressure so we do expect this year ahead to be quite tough for us still.

NZINGA QUNTA: Then take us through your cash and cash equivalents. What happened there?

WERNER DE JAGER: Last year we had a potential transaction with Pepkor to buy the building company that didn’t come to fruition.

So last year we decided to pay out our full profit for the year, basically a one-time dividend cover. The dividend for the prior year was higher, and that is really why we are seeing the decrease in the cash and cash equivalents.

This year, seeing that it’s still a healthy number, we decided to cut our dividend cover from two times to one-and-a-half times.

NZINGA QUNTA: And Werner, what’s your dividend policy, and how much of a dividend have you declared?

WERNER DE JAGER: The dividend policy has been changed, as I just said, to a one-and-a-half time cover. So we declared a R6.77/share final dividend for this year.

NZINGA QUNTA: Then talk me through the short-term and medium-term prospects for Cashbuild.

WERNER DE JAGER: In the short term we expect things to remain tough. As we discussed earlier, the market conditions are not positive for the business. But longer term, we’ve our strategies in place, we’ve about five to seven new stores planned for the next year, and we will keep on investing in our business and making sure that we grow the business.

NZINGA QUNTA: Talk to me about those stores. You say you’ve opened four new Cashbuild stores, you’ve refurbished 21 and relocated one Cashbuild store.

WERNER DE JAGER: Yes, that’s correct. This year was actually quite an interesting year because we had to also rebuild the looted stores and reopen them, so it was quite a busy year. We invest in our stores every six years or so to make sure that we keep them up to standard, and that’s a process that will continue. The new stores were [fewer] than we would have hoped for, but we are busy making sure and looking for more opportunities so that we can get back on track with more stores every year.

NZINGA QUNTA: When you speak about opportunities, are you set to remain in South Africa, or expand further into the continent or even beyond?

WERNER DE JAGER: We are currently trading all of our neighbouring countries, so Lesotho, Eswatini, Botswana, Namibia and in Malawi, also in Zambia. We recently, after our year-end, decided to withdraw from the Zambian business and we closed the two stores that we had there. So that is part of our strategy.

But for the medium term our focus is going to be in South Africa. There is still space for quite a number of Cashbuild stores and those are the opportunities that we’ll be pursuing.

NZINGA QUNTA: Let’s go back to that July unrest, and the looting and how it affected you. I know the insurance recovery claims were recognised in cost and sales of R143 million and other income. What else happened with those payments and around that unrest?

WERNER DE JAGER: The unrest all in all – it was not just the 36 stores that we had [that were] influenced during that time. At some point half of our store base was closed for a day or two during the time, just to make sure that our staff and people were safe. The cost of rebuilding all of that has also impacted on our cash flow, and has contributed to the slightly lower cash balance.

But it’s been an excellent task from all involved to make sure that those 20 outlets are already trading again. We’ve five that we still need to get back trading. We are waiting for landlords in most of cases, but at least on four of them we have definite project plans in place to see them opening hopefully within this financial year still.

NZINGA QUNTA: Do you think we are ever going to get to the point where we were in Covid, where everybody was trying their hand at DIYing, flocking to the stores, which drove your revenue up as you mentioned earlier on.

WERNER DE JAGER: I certainly hope so. But I do think the fact that people were able to actually supervise some of the activities also helped, because you are at home you can oversee during lunch breaks and things like that. And obviously people saved money from not spending money on travelling. So there were quite a few unique situations. I don’t think we’ll see that very soon again.

NZINGA QUNTA: Werner de Jager, CEO of Cashbuild, joined us there. Thanks so much for your time. Cashbuild revenue has been dipping as that DIY trend slows.